Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Warf Computers has decided to proceed with the manufacture and distribution of the virtual keyboard ( VK ) the company has developed. To undertake this
Warf Computers has decided to proceed with the manufacture and distribution of the virtual keyboard VK the company has developed. To undertake this venture, the company needs to obtain equipment for the production of the microphone for the keyboard. Because of the required sensitivity of the microphone and its small size, the company needs specialized equipment for production.
Nick Warf, the company president, has found a vendor for the equipment. Clapton Acoustical Equipment has offered to sell Warf Computers the necessary equipment at a price of $ million. Because of the rapid development of new technology, the equipment falls in the threeyear MACRS depreciation class. At the end of four years, the market value of the equipment is expected to be $ million.
Alternatively, the company can lease the equipment from Hendrix Leasing. The lease contract calls for four annual payments of $ million, due at the beginning of the year. Additionally, Warf Computers must make a security deposit of $ that will be returned when the lease expires. Warf Computers can issue bonds with a yield of percent, and the company has a marginal tax rate of percent.
Should Warf buy or lease the equipment?
Nick mentions to James Hendrix, the president of Hendrix Leasing, that although the company will need the equipment for four years, he would like a lease contract for two years instead. Solve with Excel Format
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started